Albemarle (ALB -2.26%) stock rose 2.7% on Monday after the market close, following the U.S.-based lithium giant raising its full-year 2022 guidance for revenue, adjusted earnings per share and another key profitability metric, and cash from operations.
The specialty chemical company, which is also a leading producer of bromine and catalysts, cited "the completion of additional lithium contract renegotiations following [its] Q1 2022 earnings release on May 4," as the primary reason for this latest guidance increase.
Lithium prices have been soaring largely due to surging demand for the silvery-white metal to produce the lithium-ion batteries that power electric vehicles, which are growing in popularity. So, Albemarle and other lithium producers have strong pricing power, which gives them the upper hand in contract negotiations and renegotiations with customers.
While there are no guarantees, Albemarle stock's after-hours action on Monday bodes well for its performance on Tuesday, when there will be more market participants. Of course, broad market dynamics will likely play a big role in the stock's Tuesday performance, as well.
Lithium is a key component in the lithium-ion batteries that power electric vehicles. Image source: Getty Images.
Albemarle's 2022 guidance
In just over three months, Albemarle has significantly raised its outlook for 2022 revenue, profitability, and operating cash flow.
| Metric | 2021 Result |
New 2022 Guidance (Issued May 23) |
Prior Upward Revision of 2022 Guidance (Issued May 4) | Initial 2022 Guidance (Issued Feb. 16) | Annual Growth Implied by New Guidance* |
|---|---|---|---|---|---|
| Revenue | $3.33 billion | $5.8 billion to $6.2 billion | $5.2 billion to $5.6 billion | $4.2 billion to $4.5 billion | 74% to 86% |
| Adjusted EBITDA | $871 million | $2.2 billion to $2.5 billion | $1.7 billion to $2.0 billion | $1.15 billion to $1.3 billion | 153% to 187% |
| Adjusted EBITDA margin | 26.2% | 38% to 40% | 33% to 36% | 27% to 29% | Increase of 11.8 to 13.8 percentage points |
| Adjusted EPS | $4.04 | $12.30 to $15.00 | $9.25 to $12.25 | $5.65 to $6.65 | 204% to 271% |
| Cash from operations | $344 million | $550 million to $850 million | $500 million to $800 million | $400 million to $500 million | 60% to 147% |
Data source: Albemarle. EBITDA = earnings before interest, taxes, depreciation, and amortization. EPS = earnings per share. *Calculated by author.
First some context before drilling down to the primary reason for the new guidance. In 2021, Albemarle's lithium business accounted for about 41% of its total revenue, 55% of its overall EBITDA, and 63% of its business unit EBITDA. These numbers show that the lithium business had an outsize effect on the company's overall profitability.
In the May 23 release, Albemarle updated its lithium business outlook:
Lithium adjusted EBITDA for the full year 2022 is now expected to grow approximately 300% year over year, up from previous outlook. Average realized pricing is now expected to be up approximately 140% year over year resulting from the implementation of index-referenced, variable-price contracts and increased market pricing. Full-year 2022 volume is expected to be up 20-30% year over year primarily due to new capacity coming online (unchanged from previous outlook).
The company's prior lithium business outlook, released on May 4, was as follows:
Adjusted EBITDA for the full year 2022 is expected to grow approximately 200-225% year over year, up from the previous outlook. Average realized pricing is now expected to be up approximately 100% year over year resulting from the renegotiated index-referenced variable price contracts and increased market pricing. Full-year 2022 volume is expected to be up 20-30% year over year (unchanged).
In summary, thanks to Albemarle's completion of additional lithium contract renegotiations since May 4, its expectation for 2022 annual realized lithium pricing growth has jumped to 140%, from 100%. And its projection for its lithium segment's 2022 annual adjusted EBITDA growth has soared to 300%, up from a range of 200% to 225%.
Albemarle is a stock well worth putting on your watch list.
